Political connections, tacit power and corporate misconduct

Matthew McCarten*, Ivan Diaz-Rainey, Helen Roberts, Eric K.M. Tan

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

This paper examines the impact of political connections (i.e., lobbying and political contributions) on the time it takes to detect corporate misconduct and the size of penalties following securities class actions (SCAs), restatements and Accounting and Auditing Enforcement Releases (AAERs). We find firms with political connections exhibit longer misconduct periods for SCAs, and such ability to conceal misconduct for longer translates into a larger settlement size. In addition, we find politically connected firms are associated with greater shareholder losses and are less likely to be involved in Securities Exchange Commission enforcement actions on restatements. Finally, while we do not find any relation between political connections and the likelihood of AAERs being settled, we find political connections are associated with lower AAER settlement size.

Original languageEnglish
Pages (from-to)1530-1552
JournalJournal of Business Finance and Accounting
Volume49
Issue number9-10
Early online date12 Mar 2022
DOIs
Publication statusPublished - Oct 2022

Keywords

  • AAER
  • corporate governance
  • corporate misconduct
  • enforcement
  • political connections
  • restatements
  • securities and exchange commission
  • securities class actions
  • tacit power

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